The Democratic “blue wave” in Washington D.C. took two months longer than many investors had anticipated, but it arrived this week when Democrats narrowly eked out a majority in the Senate. Following the Georgia runoffs, investors are once again searching for the best stocks and ETFs to own under Democratic leadership.
Inflation And Rising Rates: Bank of America analyst Jared Woodard discussed several ETF ideas for investors looking to play the blue wave trade.
“As we argued last fall, unified government clears the path for big fiscal packages to drive growth, inflation and bond yields higher,” Woodard wrote in a note.
The biggest themes investors should consider are cyclical and value stocks that should benefit from rising inflation rates and stimulus-driven economic growth.
Woodard said energy stocks, clean energy stocks and materials stocks should all benefit from rising inflation rates. He recommends ETFs such as the Energy Select Sector SPDR Fund (NYSE: XLE), the iShares Global Clean Energy ETF(NYSE: ICLN) and the Materials Select Sector SPDR Fund (NYSE: XLB).
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In addition, Woodard said a steepening yield curve should be good news for the bank ETFs such as the SPDR S&P Bank ETF (NYSE: KBE). For investors looking for a more diversified financial sector play, the First Trust Financials AlphaDEX Fund(NYSE: FXO) is the financial sector fund with the highest weighting of bank stocks.
Infrastructure And Technology: Infrastructure spending may be one of the Joe Biden administration’s top priorities, and Woodard said the Invesco S&P 500 Eql Wght Industrials ETF (NYSE: RGI) is the industrial ETF with the highest exposure to construction stocks.
Finally, Woodard recommends investing in technology ETFs that have relatively low exposure to the FAAMG group due to antitrust concerns. He recommends the First Trust Technology AlphaDEX Fund (NYSE: FXL), in which the FAAMG stocks have just a 4% weighting.
Benzinga’s Take: While the Republican party is typically seen as the party of big business, the stock market has performed very well throughout history under Democratic leadership. Since 1948, the S&P 500 has averaged a 14% annual return during years in which Democrats control the White House and both houses of Congress.